Clean-Tech Industry Facing Lean Times After Solyndra

President Obama tours the headquarters of the Solyndra solar panel company in Freemont, Calif., on May 26, 2010.The company declared bankruptcy in August 2011.

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Originally published on February 2, 2012 4:41 pm

Three years ago, venture capitalists were pouring billions of dollars into technologies like solar power, wind power, biofuels and fuel cells. The federal government followed, directing some $44.5 billion into clean technology from late 2009 to late 2011 through loans, subsidies and tax incentives.

But now the clean-tech industry is facing leaner times, in part because of cheaper natural gas prices, the effects of the financial crisis and China's growing solar industry.

On Thursday's Fresh Air, Washington Postenvironmental correspondent Juliet Eilperin, who covers the industry's struggles in Wired's February issue, explains how and why the clean-tech industry boom hit a wall.

That wasn't supposed to happen, she says. In 2008, venture capitalists invested more than $4 billion in clean energies like solar and wind power, according to the National Venture Capital Association. But then the natural gas boom helped decrease natural gas prices, lowering the incentive to switch to renewable energies. At the same time, the price of silicon — an important component in both semiconductors and solar panels — dropped after China heavily entered the market. This, too, made alternative energy sources less desirable.

Those affected included the now-bankrupt solar energy company Solyndra. Solyndra's initial goal, says Eilperin, was to develop a solar panel that didn't rely on silicon — a business plan developed at a time when the price of silicon was skyrocketing.

"People thought, 'We've got to come up with an alternative source of solar energy; we have to figure out another way that's not reliant on silicon in order to make a price,' " Eilperin tells Fresh Air's Terry Gross. "That's when you saw entrepreneurs like Chris Gronet, the engineer behind Solyndra, look for a very different model in order to move away from [silicon], what had been the rock of the solar industry in this country for several decades."

The Financial Collapse

But just as Solyndra was taking off, the financial industry collapsed and venture capitalists began looking elsewhere with their investments.

"You saw significant drop-off after the recession hit, in the fall of 2008," says Eilperin. "Really, it was the Obama administration's influx of money, which started coming out with the stimulus package in 2009 — that ... prevented the clean-tech industry from cratering in the U.S., because you saw such a retrenchment within the venture capitalist community."

Eilperin says the Obama administration was trying to help compensate for the venture capitalists that pulled out of the solar industry, and also trying to deliver on its promise to address the issue of climate change.

"They found that it was easier to direct dollars to federal energy projects than it was to pass national limits on greenhouse gases, which could have been another way that would have made the clean-tech industry competitive," she says. "But they were obviously also closely in contact with Silicon Valley entrepreneurs and saw what was happening. ... You just had a collapse of the financial markets ... and [they saw that] everyone was suffering from a lack of cash."

One of the companies to benefit from the government was Solyndra, which had a loan application pending when President Obama took office. The company received a $528 million federal loan guarantee in September 2009 from the administration.

"It was their signature deal, and it was the first deal that they struck under the federal loan guarantee program," she says. "And that's why it became so important politically as well as just psychologically. It was a defining technology bet for the administration, not just for [Solyndra]."

Building A 'Dud'

But Solyndra didn't realize, says Eilperin, that dropping silicon prices were making their alternative solar project what she calls "a dud."

"They didn't see, when they were doing the groundbreaking, that things were doomed," she says. "But they did become concerned by the fall of 2010. They had to abandon plans for a $300 million public offering. They had another loan application to the federal government in the pipeline, which was withdrawn. So they became very concerned because they had an expensive machine that was responsible for producing [the alternative solar energy cylinder], and the machine just wasn't pulling its weight. It wasn't working. And at that point, they were very concerned about the viability of their company."

On Capitol Hill and in public meetings, the company continued to exude confidence, she says. But some administration officials began to grow concerned. Emails obtained as part of a congressional hearing indicate that federal officials were worried that a visit by Obama to the company's Freemont, Calif., headquarters could be "embarrassing in the not too distant future." The company declared bankruptcy in August 2011, not long after an internal White House memo obtained by The Washington Post revealed that it had no profit gains between 2009 and 2011.

Targeting Obama's Energy Loans

Solyndra now features prominently in a new $500,000 ad campaign created by Crossroads GPS, a conservative advocacy organization founded by Karl Rove. The ad calls the Solyndra loan "an insider deal."

"There's certainly not the clear evidence of cronyism that some might suggest," she says. "For example, there are initial investors in Solyndra such as ... venture capitalist firm RockPort Capital ... who did meet with top advisers at the White House and did talk up Solyndra. But there hasn't been the kind of smoking-gun memo to imply that the Obama administration was interested in backing Solyndra to, for example, repay campaign contributors.

"That said, there's no question that the White House put pressure on the Office of Management and Budget as well as the Department of Energy to push this loan through quickly, and they did ignore some of the advice. ... Whether the connections can be spelled out as clearly as Obama's opponents want [them] to be, that's something that we're going to see in the months to come."

Regardless of the outcome, Eilperin says the Solyndra bankruptcy has made it much more difficult for the federal government to invest in the clean energy sector.

"There is no question about that," she says. "This loan guarantee program has been exhausted, the money has run out, and no one is talking about reviving it."

That outcome, she says, has made opponents of clean energy quite happy.

"The oil and gas industries have benefited for many years and decades from federal assistance," she says. "[The fossil fuel industries] have tax credits that are permanent. ... There is no question that when it comes to federal support, traditional fossil fuel energy gets more support than the renewable energy industry."

This is FRESH AIR. I'm Terry Gross. My guest, Juliet Eilperin, is the national environmental reporter for the Washington Post. In the current edition of Wired magazine, she has an article about why the clean tech boom went bust. She describes how just a few years ago, venture capitalists were investing in clean energy like solar power, wind energy, electric cars and thinking that the Silicon Valley could become the Saudi Arabia of clean energy.

When President Obama took office, he made a commitment to using federal dollars to stimulate what his administration described as the clean energy economy. Eilperin says the billions of dollars the Obama administration gave to the clean energy industry through loans, tax credits and subsidies helped make clean energy look like a good bet to the venture capital world, but it doesn't seem so safe anymore, especially in the wake of the bankruptcy of the solar energy company Solyndra, which was the first recipient of the Obama administration's loan guarantees.

Eilperin describes how Solyndra's failure was, in part, a symptom of the larger problems facing clean tech in the U.S.

Juliet Eilperin, welcome back to FRESH AIR. Now, there are several reasons why the clean energy boom didn't last, and you say one of them is the natural gas boom, and this is, you know, hydraulic fracturing, or fracking of shale rock, which is very controversial for various environmental reasons.

JULIET EILPERIN: It's had a real impact, because what you've seen is that one of the big drivers, initially, for the move to clean energy was the idea that energy was costly, and whether you were talking about natural gas or oil that these prices were high. And therefore, if you could come up with an alternative - whether it was solar or wind or something else - that they could come in and potentially, while you'd have to pay a lot of money up front, over time you'd have a, you know, the sun shines, and you don't have to pay for it.

And the wind blows and, again, that also is free. And so you could take advantage of that and, over time, deliver a stable source of electricity or energy at a decent price.

Now, what happened is natural gas has fallen so precipitously since 2008, it's really, you know, a quarter of what it used to cost and appears to at least be stable at roughly that price for the next few years, given what we've seen in terms of shale gas supplies, that this provided a huge competition for renewable energy.

If people could shift over - particularly in terms of electricity - and get cheaper natural gas, which has roughly half the carbon emissions of, say, coal, it was worthwhile for them to do it, and it lowered the incentive to make investments in some of these renewable energies.

GROSS: Now, another reason you give for the clean tech boom going bust is the glut of processed silicon. How is silicon used in solar power?

EILPERIN: Silicon is incredibly important. It's basically the raw material that's processed to make these silicon wafers, and they create boles, kind of almost ingots, and then slice them and process them into the solar wafers on panels that are essential for essentially converting sunlight into electricity, which needs to be converted in terms of its supply to then transmit to homes and companies.

But what's fascinating about this is, again, initially, when you look at silicon and where - what it was used for, silicon was important for the semiconductor industry, and that's where the supply was going, and essentially the solar industry was getting the leftovers.

And then, at a point, that flipped. And as the solar industry took off, they got the silicon, but silicon was - there wasn't enough supply to really, you know, address adequately what the solar industry needed. And at that point, when silicon was so expensive and going upwards, you know, to something like $350 per kilogram, people thought: We've got to come up with an alternative source of solar energy. We've got to figure out another way that's not reliant on silicon in order to make a price.

And that's when you saw entrepreneurs like Chris Gronet - who's the engineer behind Solyndra - look for a very different model in order to kind of move away from what had been the rock, the basis of the solar industry in this country for several decades.

GROSS: So Solyndra's goal was to build a solar panel without using - without relying on expensive silicon.

EILPERIN: Exactly. His conclusion - again, with kind of the mindset of almost a venture capitalist - is: Let's think completely out of the box, and instead of relying on the same technology that's been operating since the 1950s and '60s, let's try to come up with something totally different and see if that's a way that we can kind of break out of the box and not get trapped by these high silicon prices.

GROSS: But instead what happens is that silicon becomes very cheap. How does that happen?

EILPERIN: What's really interesting you saw an explosion in manufacturing. And as we're seeing in many of these instances, it's things like the Chinese getting in. And once they were willing to put in the investment to put up a plant that would manufacture silicon, it was pretty cheap, and they could undercut these prices.

And we've see, for example, again the price of silicon - which was above 350, at some points $400 per kilogram - drop below $30 per kilogram. So, again, think of how that explodes your model if you've gone to something that was extraordinarily expensive, which then becomes widely available, very cheap and therefore allows the conventional technology that's been around for a while to dominate, while those who were thinking of kind of a very different model are left outside in the cold.

GROSS: So China is really dominating now when it comes to solar power cells. How did they get the edge over the U.S.?

EILPERIN: Well, it was a combination of things. One is that they have a coherent industrial policy that encouraged the manufacture of solar panels. So what you've seen is everything from providing relatively inexpensive land for people who are interested in solar panel manufacturing, lines of credit from the national bank, which has made it cheap for them to borrow money.

And, obviously, they do have relatively inexpensive labor and some other factors. And as a result of that, you know, you've seen an incredible reversal, where, for example, you know, in the mid-'90s, you had - the U.S. supplied roughly 40 percent of the world's solar panels. That's now down to 6 percent. And by contrast, China, at this point, is providing roughly half of the world's solar panels.

GROSS: You know, in talking about how the clean-tech boom went bust, you also have to include the whole financial meltdown from 2008. That must have come into play, too.

EILPERIN: Absolutely. That was huge. And so what you really saw is, again, this venture capital money which, you know, expanded dramatically between, say, 2005 and 2008, and you saw significant drop-off after the recession hit, in the fall of 2008. And really, it was the Obama administration's influx of money, which started coming out in 2009 with the stimulus package that they passed. That's what, in fact, prevented the clean-tech industry from cratering in the U.S., because you saw such a retrenchment within the venture capital community that it was the federal government that came in and really saved the day, to some extent.

GROSS: Was the federal government trying to compensate for the venture capitalists who pulled out?

EILPERIN: They were, to some extent. And also, the administration was trying to deliver on, for example, many of its pledges, including the fact that it was going to address the issue of climate change. And they found that it was easier to direct federal dollars to renewable energy projects than it was to, say, pass national limits on greenhouse gases, which could have been another way that would have made the clean-tech industry competitive.

And so - but they were also, obviously, closely in contact with Silicon Valley entrepreneurs and saw what was happening and saw that, basically, you just had, you know, a collapse of the financial markets, that you just didn't have the investments that you had before they went into office, just because, clearly, everyone was suffering from a lack of cash.

GROSS: Now, earlier you mentioned that Solyndra's goal was to find an alternative to silicon when it came to manufacturing solar panels, because silicon, at the time, was very expensive, but then silicon became very cheap. How did that change the whole goal of Solyndra?

EILPERIN: It had a huge impact. So because, basically, when Solyndra was getting started, they had this idea, as you mentioned, that instead of relying on crystalline silicon, they would take a mix of copper, indium, gallium and selenium - which is shorthand, is called CIGS in the solar industry.

And they would use that cover, which actually could perform better under cloud cover and (technical difficulties). Also, they would apply it to these cylindrical panels rather than flat panels. And if positioned on white roofs, they not only would be cheaper to install, but they could pick up some reflected light, and therefore would be able to generate, ultimately, more electricity than standard panels.

That was the technology bet that they made, and ultimately, it turned out to be a bad bet, given that silicon prices dropped so precipitously and folks had much more of an incentive just to go with conventional solar panels rather than these more revolutionary ones.

GROSS: So at what point during that arc of seemed like a good idea, ended up being way more relatively expensive than they expected, at what point does the Obama administration give a loan to Solyndra and offer Solyndra as an example of the future?

EILPERIN: This was a loan application that had been pending at the time that the Obama administration took over, and so right in the beginning of - you know, in January of 2009, they were looking at it, but made the determination that they had to do a little more analysis.

And so they looked at it, and basically, in March, had come up with the tentative deal, where they were going to give the guarantee. And ultimately, it took some time. So it was in September when they finalized it, but - so they were going through.

But it was their signature deal. It was the first deal that they struck under the federal loan guarantee program. And that's why it became so important, both politically, as well as later, you know, just psychologically. It was a defining technology bet for the administration, not just for Chris Gronet and his colleagues.

GROSS: So was Solyndra already at the point where the company realized that its financial model wasn't going to work and that their alternative solar panel was actually a dud?

EILPERIN: People didn't seem to realize it at that point, all those...

GROSS: You used the word a dud, so I used it, too.

(SOUNDBITE OF LAUGHTER)

EILPERIN: There you go. So they didn't seem, at that point, you know, right when they were doing the groundbreaking and things like that - you know, at that point, they weren't worried that things were doomed. But they did become concerned by, say, for example, the fall of 2010.

By that point, they had to abandon plans for a $300 million initial public offering. They had another loan application to the federal government in the pipeline, which ultimately was withdrawn.

And so they became very concerned, and particularly they became concerned because they had a very expensive machine that was responsible for basically producing these cylinders and, you know, doing them in record time. And the machine just - as, you know, as one of the former employees told me, just - it wasn't pulling its weight. It wasn't working. And at that point, they were very concerned about the viability of the company, even though publicly and in their meetings - say, with lawmakers on Capitol Hill - they continued to exude confidence.

GROSS: So the Washington Post got hold of a memo that you refer to in your article, and the memo's from August 2011, which was the month that Solyndra went bankrupt. But I think the memo was written shortly before, like, a few days before it went bankrupt.

So it's an internal White House memo saying that Solyndra has had zero percent sales growth since the fall of 2009. What's the significance of that memo?

EILPERIN: It's really significant in two ways. One is that the company was giving a very different message to lawmakers who have input on how federal dollars are spent, and so for example, literally a month before, in July, the CEO at the time, Brian Harrison, was going and was meeting with top Republicans and top Democrats on, for example, the House Energy and Commerce Committee. And he was boasting about their sales, talking about how they'd risen from $6 million in 2008 to $100 million in 2009 and to $140 million in 2010.

And so they were getting the message that Solyndra was a worthwhile investment for the federal government. But clearly, as you can see, even some people within the White House were scrutinizing these numbers. And, you know, up until when, for example, President Obama visited in May 2010, it really was only in the weeks leading up to that presidential visit that the White House began to hear both from, for example, some outside advisors who warned that Solyndra might be in trouble, as well as from, for example, some Office of Management and Budget officials that were looking about it and were looking at this deal and wondering whether it was going to be a political liability for the president if he went there.

So even in May of 2010, at that point, they had begun to hear concerns. And then what happened is you continued to see examples that congressional investigators have unearthed of warning signs that the administration had, but it was also in a difficult position because, for example, energy officials were trying to figure out what to do in early 2011 when they did have some warnings that Solyndra was cash-strapped, that this would be a problem.

But ultimately, they agreed to restructure their original loan, and in a very significant move, agreed that taxpayers - who usually are always paid back first in the case of bankruptcy - would take a backseat to private investors because if they didn't agree to that, some of the private backers of Solyndra were threatening at that point to walk away, and the company would have failed earlier than it did.

GROSS: If you're just joining us, my guest is Juliet Eilperin. She's an environmental reporter for the Washington Post, and she's written an article called "Why the Clean Tech Boom Went Bust." That's published in Wired magazine. Juliet, let's take a short break, here. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

GROSS: If you're just joining us, my guest is Juliet Eilperin. She's the national environmental reporter for the Washington Post. And in Wired magazine, she has an article called "Why the Clean Tech Boom Went Bust."

You've talked about some of the reasons why the clean-tech boom collapsed, and you talked a little bit about why the Obama administration decided to give loans to the clean-tech industry. So now Solyndra is being used as a talking point in the Republican presidential race.

The conservative group Crossroads GPS - which was co-founded by Karl Rove - has a new ad slamming President Obama for having the federal government invest in Solyndra and promising a green economy and more jobs, and it calls the Solyndra loan an insider deal.

And Crossroads' president, Steven Law, wrote a memo calling the Solyndra case, quote, "a powerful cautionary tale about big-government hubris and the cronyism it invariably invites." Is there evidence that the Solyndra loan was an insider deal, or that there was cronyism involved?

EILPERIN: I think that that's a complicated question, and that there is certainly not the clear evidence of cronyism that some might suggest in the sense that while, for example, there are initial investors in Solyndra such as David Prend, who has his venture capitalist firm RockPort Capital, who had access to the White House, certainly did meet with top advisers and did talk up Solyndra.

But there hasn't been the kind of smoking-gun memo to imply that the Obama administration was interested in backing Solyndra because of, for example, to repay campaign contributors.

That said, there's no question that the White House put pressure on the Office of Management and Budget, as well as the Department of Energy, to push this loan through quickly, and they did ignore some of the advice.

And there's no question that there were people like, for example, George Kaiser - a major contributor and fundraiser for Obama - who had a financial stake in Solyndra. So, you know, whether those connections can be spelled out as clearly as Obama's opponents want them to be, that's something that we're going see in the months to come. It's a question of the congressional investigations.

GROSS: Do you think - based on, you know, having covered Congress in the past and now covering environmental issues - do you think that the Solyndra bankruptcy has basically killed the ability of the federal government to invest in the clean energy industry and to help the clean energy industry?

EILPERIN: I think it's made things much more difficult. There's no question about that. There's very little appetite for the kind of direct federal support that we've seen. For example, this loan guarantee program has been exhausted. The money ran out. And no one even talks about the idea of reviving this federal fund to support renewable energy.

One of the really critical questions that's going to come up by the end of the year is the wind industry gets a production tax credit, which is very important for its viability. This is something that actually bipartisan support. There are some Republicans in Iowa and in Kansas who think it's important, as well as, obviously, some liberals, whether you're talking about in Oregon or Washington state or California.

And, you know, this is something which, in another year, might be a slam dunk that it would be renewed. But I think there are real questions about what's going to happen, just because Solyndra has become such a toxic political term, as you've pointed out.

GROSS: What are some of the federal subsidies or tax breaks that the fossil fuel industry has gotten over the years, or the nuclear industry?

EILPERIN: It all depends on who you're talking about, but all of them have gotten significant advantages. There are production tax credits they have that, for example, are permanent, that aren't subject to renewal the way the wind industry has and the solar industry has.

Their transmission infrastructure has been around for decades, and so that's something that, you know, has already been paid for, as opposed to when the Obama administration fights for modernizing the electrical grid to allow renewable energy to come online.

In terms of the nuclear industry, there have been tons of subsidies for it. You know, just a few years ago, we offered more than a billion dollars in loan guarantees to nuclear power plants. And so there's no question that, up until a few years ago, fossil fuel industries were getting subsidies on a ratio of four to one compared to renewable energies.

That's been decreased somewhat with some of the renewable energy programs that have been adopted under the Obama administration. But there's still no question that when it comes to federal support, traditional fossil fuel energy gets more support than the renewable energy industry.

GROSS: Are there areas within the clean technology industry that haven't gone bust and that are doing well and that seem very promising now?

EILPERIN: There are still some signs of possibility. When you look at, for example, the solar industry, specifically, I think there are two areas where you could really see expansion. One is in terms of just the panels that people put up on their individual homes or that companies put up. It's called distributed generation. And you're seeing a real expansion there, actually, due to a business innovation.

They're using the conventional solar panels, often from China. But what they figured out is that instead of asking a homeowner or company to foot the bill up front for putting solar panels on their roofs, you would lease it to them over a period of, say, 15 to 20 years. And that made it affordable and competitive.

Then you have things like, actually, utility-scale solar plants - so, basically, enough solar panels that are put in the middle of the desert that they could actually supply the equivalent of a power plant.

And so you are seeing an expansion. That's something where, basically, the federal government gave a helping hand initially, and now you're seeing that those projects are viable on their own.

And then, you know, there are other areas, such as electric vehicles may have possibility in the next few years, and then advanced biofuels could make it over time. But - so those are a few of the areas where I think you're seeing real possibility.

GROSS: Well, Juliet Eilperin, I want to thank you so much for talking with us.

EILPERIN: It's been a pleasure. Thank you so much, Terry.

GROSS: Juliet Eilperin is the national environmental reporter for the Washington Post and the author of "Demon Fish: Travels Through the Hidden World of Sharks." Her article on the clean energy bust is in the February edition of Wired. You'll find a link on our website: freshair.npr.org.

Though the Obama administration's clean energy initiative suffered a blow from the failure of Solyndra, today the Department of the Interior announced a new plan to expedite the development of wind energy off the coasts of New Jersey, Delaware, Maryland and Virginia. I'm Terry Gross, and this is FRESH AIR.